Nucor Corporation (NUE – Free Report) recently reached agreements to acquire a majority ownership position in California Steel Industries, Inc. (“CSI”). Per the agreement, Nucor will purchase a 50% equity interest from a subsidiary of Vale S.A. and a 1% equity ownership stake from JFE Steel Corporation. CSI will be a joint venture between Nucor and JFE, subject to regulatory approvals. Per the financial terms of the deal, Nucor will pay a cash purchase price of $400 million to Vale for the 50% stake, adjusted for net debt and working capital at closing, which comes to around less than 6.0x historical average EBITDA.
The buyout will be Nucor’s second joint venture with JFE, following an automotive steel joint venture, which the companies have been operating in Mexico since 2020.
Nucor noted that the acquisition will expand its geographic reach in sheet steel and bolster its presence on the West Coast. It will also strengthen NUE’s portfolio, create opportunities for increased internal shipments and enable it to provide sheet steel products to its downstream businesses in the region, such as Verco and Hannibal Industries.
CSI has five product lines that consist of hot-rolled, pickled and oiled, cold-rolled, galvanized and ERW pipe and serves end-use segments covering customers in the construction, service center and energy industries.
Nucor’s shares have soared 117.9% over the past year compared with the industry’s 36.5% rise. The company’s estimated earnings growth rate for the current year is pegged at 583.2%.
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Nucor recently issued guidance for the fourth quarter of 2021. It projects earnings in the band of $7.65-$7.75 per share. It expects that the fourth quarter will mark the highest quarterly earnings in Nucor’s history, surpassing third-quarter 2021’s record of $7.28.
The earnings in the steel mills segment remain strong in the fourth quarter, Nucor noted. It is projected to be comparable to third-quarter levels, despite the company encountering lower volumes due to year-end seasonality.
The company anticipates fourth-quarter earnings in the steel products segment to increase, driven by strong demand in non-residential construction. Earnings in the raw material segment are projected to decline in the fourth quarter from the previous quarter, mainly due to margin compression in its direct-reduced iron facilities.
Nucor sees strong demand in most of its end markets. The company is confident that 2022 will be another year of solid profitability.
Zacks Rank & Key Picks
Nucor currently carries a Zacks Rank #3 (Hold).
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